Be firm, be patient on Ukraine

Russia stands to lose

March 04, 2014

As night fell Monday, Russia controlled much of the Crimean Peninsula and threatened the rest of Ukraine, as President Barack Obama and Western allies pleaded with President Vladimir Putin to recognize he was making a terrible blunder. Putin doesn't have a track record of responding nicely to appeals for reason.

Putin knows that the West won't respond militarily to a full-scale Russian invasion of Ukraine, which is not a member of NATO. Russia was busy laying the groundwork Monday for an argument that Ukrainians wanted Russian troops to come in to protect them.

So how can the West respond? By recognizing that Russia has tanks to roll, but its economy is on the rocks.

Bring a methodical economic squeeze. That won't bring instant satisfaction. It could cause pain in the parts of Europe that rely heavily on Russia for energy supplies. But an economic squeeze is the best, probably the only, course to convince Putin this time that his recklessness carries too high a price.

Russia invaded Georgia in 2008 and lived to tell about it. Ukraine and Georgia sought membership in NATO, but the alliance saw no urgency ... and feared provoking Russia. Ukraine eventually withdrew its bid.

Russia invaded Georgia one year after it was awarded the Winter Olympic Games that just concluded in Sochi. There was never any serious thought by the International Olympic Committee of withdrawing the Games. Russia was a bad character ... but everybody moved on.

So how can the West extract a price that means something? By focusing on Russia's energy industry, which has provided the revenues to prop up the Putin government through Russia's economic malaise.

Trade restrictions could make it more difficult for Russia to obtain the capital, equipment and know-how it needs for the exploration and development of its untapped energy reserves. Travel restrictions could make it more difficult for Russia's government and tycoons to do business abroad.

The risk is that Eastern Europe, Ukraine included, relies on Russia for practically all its gas. In Germany, Europe's biggest economy, 35 percent of the gas comes from Russia. Retaliation by Russia against sanctions could cause an economic jolt.

But the West has few other options. The United Nations can pass finger-wagging resolutions. Think Putin cares?

Long term, Russia's belligerence should prompt the U.S. and Europe to encourage investment in energy production from friendlier sources. Norway's Statoil sells more gas to European nations than does Russia's Gazprom.

Once the dust settles — even Russia has to realize a long-term occupation of Ukraine isn't in the cards — the West should step up efforts to boost domestic energy production in Ukraine. The West isn't going to buy off a Ukrainian president, like Putin did. But it can surely provide much more economic assistance, and greater access to markets, to convince a divided populace that a free economy is the only direction to go.

Ukraine can't match the Russian military gun for gun. But it can make itself a little less vulnerable to Russia's economic bully tactics. Ukraine has signed deals with Chevron Corp. and Royal Dutch Shell for potentially transformative energy projects in the western, Eurocentric part of the country. American and European diplomats can assist in nailing down deals for deep-water drilling in the Black Sea.

The Russian economy grew by only 1.3 percent in 2013. That's likely to look like nirvana compared with 2014 if Russia persists with its folly in Ukraine. Stock indexes in Russia cratered Monday. The Russian ruble hit a record low against foreign currencies. The country faces a dangerous threat of inflation.

Putin has squandered his nation's oil wealth to promote his Soviet-style, autocratic rule. As Russia marches backward, resorting to force to achieve its political ends, it becomes even less attractive for foreign investment. America and Europe can make the most of that vulnerability.

Dry up foreign investment in Russia. Putin's not one to cry for mercy, but he'll feel the pain.